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Author Topic: How does the risk/reward ratio of Bitcoin compare to other investments?  (Read 1303 times)
TiagoTiago
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June 22, 2011, 07:52:27 PM
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Somtimes i get the feel that Bitcoin somehow seems to be less risky for the rewards you're likely to reap than plenty other legit investments out there (it pays lots more with a much smaller chance you'll loose money), at least in the long term (like starting with a few months). Is that impression mistaken?  How does Bitcoin compare to other investment opportunities out there in terms of the risk/reward ratio, and in terms of risks alone and profit margin alone?



ps:i'm talking about buying BTC with fiat money, or asking BTC as payment for services and products instead of govt money; i think mining would need to be evaluated on top of the evaluation of just investing in BTC

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June 22, 2011, 08:06:30 PM
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How do you measure risk?  Relative volatility?  What time span do you want to reference? 

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June 22, 2011, 08:15:00 PM
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Bitcoin is entirely unexplored territory, so it seems this question will only be answered in retrospect (and even then, "risk" can be a somewhat meaningless concept in retrospect, because we only know whether something went right or wrong, not what the probability of this outcome was).  Theoretically, as best as I understand, the price at any given time should be pretty much proportional to:

number of users * average perception of reward / average perception of risk

This function experiences cycles of both positive and negative feedback, as fast gains in price increase both the perception of reward and the perception of risk.  The perception of risk has necessarily increased since the Mt. Gox incident, so I suspect the relative stability of price can be attributed to the first variable - the publicity has caused the user-base to grow faster than ever.

Based on my somewhat naive equation, we could actually come up with a rough "risk ratio" if we found some metric for user activity, such as forum posts / day.  (Though it would be a challenge to compare this to other commodities.)

Vires In Numeris.
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June 22, 2011, 08:29:19 PM
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Re: my last post


Vires In Numeris.
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June 22, 2011, 08:45:22 PM
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Or over a longer time scale:


This seems to roughly correspond to the mass index, implying that confidence in Bitcoin peaks just before a reversal.  Don't know how relevant that is to your original question, though.

Vires In Numeris.
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June 22, 2011, 08:50:35 PM
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The best risk/reward would be to sell digital goods, (legit) software, services that don't take too much of your time, etc.
If you can receive BTC for anything that costs you next to nothing, then your risk/reward is tremendously favorable. 

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